Rubino: Spectacular Gold CoT Report Forecasts A Huge Six Months Ahead

No need to mince words anymore. If the futures market still influences gold’s price, then that price is going to spike. And silver is better than gold.

Since January, gold futures speculators have been trending from extremely bullish to scared short. And in the week ending last Tuesday (the most recent data available) they appeared to capitulate, adding a massive number of short positions while marginally cutting their longs. They’re now about as close to neutral as they’ve ever been. Based on the history of the past decade this is hugely bullish, since speculators tend to be wrong when they’re fully convinced they’re right.

For the commercials – the banks and fabricators who take the other side of speculators’ positions — it’s a mirror image: They’ve been getting less and less short for several months and in the past week took a giant step towards neutral, something that is also historically very bullish.

Here’s the same data in graphical form, with the speculators represented by the silver bars and the commercials by the red. Convergence at the middle is both highly unusual and highly bullish for gold.

Silver is better than gold

If gold is set to pop, what about silver? Again, if history is any guide gold popping means silver rocketing. The reasons for this are fairly simple: Silver is surprisingly rare and extremely cheap.

Whereas gold is mostly money, which means we save it after we mine it (nearly all the gold ever mined is sitting in vaults and jewelry boxes around the world), silver is both a monetary and an industrial metal. And what’s used for circuit boards, solar panels and the like tends to disappear rather than being recycled. So a big part of each year’s mine production is lost forever. As a result, available stockpiles of silver have been shrinking for decades.

Despite this fact, silver has gotten extremely cheap relative to gold lately. About ten times as much silver as gold is mined each year, but today it takes 78 ounces of silver to buy an ounce of gold. That means when the next bull market gets going silver won’t just rise along with gold, but will retrace a big part of the gold/silver ratio between 80 and 10. That means it will rise twice as much in percentage terms as gold.

And the junior miners are better than the metals

Mining stocks are naturally more volatile than their underlying metals because, as they like to say, they’re “leveraged to the price of the metals.” The junior miners, meanwhile, are hyper-leveraged because of their small size and lack of institutional following, which means if you buy them at the wrong time they fall by 90%. But buy them at the right time and gains of 1000% are common.

And there’s more. Even if the whole COT thing turns out to be a dud and precious metals just sit there for another few years, the juniors might still outperform. As the next chart illustrates, big gold discoveries just aren’t coming any more, which means the big miners can’t find enough new reserves to replace what they’re using up.

As commodities analyst Marin Katusa notes, “Gold miners are running out of gold and they need to replenish their reserves. They’ll do this by looking for gold in the markets. They’ll go on a buying binge to take out junior gold miners with proven reserves.”

So either way the best juniors will be great investments, soaring in long, beautiful arcs on the backs of gold and silver or in quick spikes when an industry giant buys them out for a nice premium.

To sum up, gold is looking great, silver is better than gold, and the junior miners are potentially life-changing. Assuming anyone is still paying attention.